Is Supreme Court poised to protect the Fed from Trump?

Rarely has the ideologically divided US Supreme Court seemed so much on the same wavelength. And that is not good news for President Trump.

In arguments Wednesday in a case that centers on President Trump’s authority to fire members of the Federal Reserve, the US central bank, both Republican and Democratic appointees suggested giving the president unfettered control would harm financial markets and damage public confidence.

“Your position – no judicial review, very low bar (for dismissal) and that the president alone makes the determination – would weaken if not shatter the independence of the Federal Reserve,” said Justice Brett Kavanaugh in an exchange with US Solicitor General John Sauer, representing the Trump administration.

Added Kavanaugh, a Republican appointee, “I am talking about real world, downstream effects here.”

On the surface, the case centers on President Trump’s decision last August to fire Federal Reserve governor Lisa Cook for allegedly falsifying mortgage documents in the purchase of homes in Georgia and Michigan, an announcement he made on his Truth Social account.

But at bottom, the case is about the president’s attempt to intensify his control of the Federal Reserve and micromanage monetary policy from the White House. Since taking office, Trump has repeatedly called for lower interest rates and badgered Fed Chairman Jerome Powell to quicken the pace of monetary easing. The first salvo in this pressure campaign was his announcement that he had fired Cook.

Then on Jan. 11, Powell revealed in an extraordinary video released to the public that he had been served with two Justice Department subpoenas and that he was under investigation for allegedly misleading statements that he made during congressional testimony on cost overruns for renovations at Federal Reserve headquarters.

Powell said the subpoenas were politically motivated and accused Trump of attempting to improperly sway US monetary policy.

“This new threat isn’t about my testimony last June,” Powell said in the video. “The threat of criminal charges is a consequence of the fed setting interest rates based on our best assessment rather than following the preferences of the president. This is about whether the fed will be able to continue to set interest rates based on evidence and economic conditions or whether monetary policy will be directed by political pressure or intimidation.”

Among central banks, the federal reserve is a first among equals. Its power to influence economic conditions in the United States, the world’s largest economy, by controlling the money supply and raising and lowering interest rates is followed closely by central bankers, CEOs and heads of state across the globe.

Established by Congress in 1903 with the enactment of the Federal Reserve Act, the fed’s mission from the start has been to stabilize the US banking system by functioning as a lender of last resort to commercial banks. Its twin goals are to maximize employment while keeping inflation under control.

Fed governors, who serve as the central bank’s policy making group, are appointed to staggered 14-year terms, so that no sitting president can gain a majority. Under the law, presidents can remove a fed governor only “for cause.” The law does not specify what might be cause, but the term typically is understood to mean some form of serious misconduct. Policy differences with the president over the pace of interest rate adjustments under this line of reasoning would not be considered grounds for removal.

Although presidents from Harry Truman and Lyndon Johnson attempted to pressure the fed to lower interest rates, the fed for the most part has been able to hold them off – with one notable exception. In 1972, with elections looming, former President Richard Nixon persuaded fed chairman Arthur Burns to lower rates. That decision was unsupported by economic data at the time and economists later attributed the ensuing high inflation to Burns decision.

Cook, who was appointed to the federal reserve by former President Biden in 2022, sued to prevent Trump from removing her from office. The order firing her was stayed by a federal district court judge Jia Cobb in Washington, DC, a decision that was upheld by the U.S. Court of Appeals for the D.C. Circuit. The Supreme Court agreed to hear the case in September.

In earlier cases, the court has been sympathetic to the Trump administration’s assertion that as chief executive, the president has the legal authority to fire independent agency heads.
In one case on its emergency docket, it allowed Trump to fire members of the National Labor Relations Board and the Merit Systems Protection Board, saying such actions fell within the president’s authority.

Then in December the court heard arguments in the case of Federal Trade Commission member Rebecca Slaughter, who Trump fired in August. A majority of the court seemed to suggest that the law barring Slaughter’s dismissal was unconstitutional.

Yet the court also seems to have created a special carve out for the Federal Reserve. In its decision on the National Labor Relations Board, the court said its reasoning to permit the president to dismiss its members likely would not apply to the Federal Reserve because the fed is “a uniquely structured, quasi-private entity” whose independence follows in the footsteps of predecessor agencies.

What was most striking about the Jan. 21 hearing was the degree to which justices who normally are at odds ideologically seemed to agree that giving Trump free reign to replace fed members would cause serious damage to financial markets and the economy.

Among the conservative majority, not only Kavanaugh but also Justice Samuel Alito and Amy Coney Barrett voiced skepticism about the administration’s claims the president need not give much of a reason for dismissing a fed member and that his decisions are not subject to review, either by the court system or by an administrative agency.

“Is there any reason why this has to be heard in such a hurried manner,” Alito asked Sauer, suggesting that the question of whether Trump could fire Cook should be considered by lower courts.

Elena Kagan, a Democratic appointee, wondered why, according to the administration, Cook had no recourse.

“All the president has to say is you’re fired, no hearing?” she asked.

The allegations against Cook, as yet unproven, stem from mortgage applications she made before taking office as a fed governor in 2022. The papers are apparently contradictory. Both the house in Michigan and the house in Georgia are described as primary residences. The Trump administration has characterized those representations as mortgage fraud and accuse Cook of falsifying the documents to gain a lower interest rate.

But Paul Clement, a former US Solicitor General and one of a handful of lawyers nationally who argues cases regularly before the Supreme Court, said that Cook had filed papers with her bank that the Georgia house was a vacation property. The assertion that it was a primary resident was a mistake, he said.

The details of the mortgage application were not before the court, however. The real question was whether Cook could remain in office while lower courts sorted out the facts. Based on the tenor of Wednesday’s hearing, it seems likely that she will remain in her job at the fed.